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Tino's Big Scam
Brian Trumbore
President/Editor, StocksandNews.com

A few weeks ago I did a piece on the stock market's reaction to the assassination of President John F. Kennedy on November 22, 1963. In the column I noted an account from the New York Times on that day which mentioned that the market had been reacting adversely to "an imbroglio over soybean oil" before the event that rocked the nation.

Well, I said I didn't recall what this referred to but thanks to reader George L., he set me on the right path. You see, George mentioned that the soybean oil scandal was really about Tino De Angelis and the Great Salad Oil Swindle of 1963. I had recalled Tino's name, but frankly was embarrassed I had forgotten this important piece of Wall Street History, especially since I once worked for a firm in the 1980s that profited from the aftermath.

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Tino De Angelis grew up in the Bronx, the son of Italian immigrants. He worked in a meat and fish market as a youth and while still a teenager was soon managing some 200 employees. A few years later, De Angelis recognized there were loopholes in various government programs, including subsidies for providing meat for school lunches, as well as a lucrative opportunity in exporting vegetable shortening to Eastern Europe, which was still struggling in the wake of World War II.

De Angelis's business boomed as he latched onto the subsidies while shipping massive amounts of substandard shortening across the Atlantic, along with taking advantage of the lunch program to provide spoiled meat products to the schools. And as Ron Insana describes in his book "The Message of the Markets:"

"As his bank account grew fatter, Tino grew too - to a remarkable 240 pounds that hung heavily on his 5'5" frame."

De Angelis then became more and more of a player in the commodities markets, both in what was then a brisk trade in vegetable oil and vegetable oil futures, as well as cotton and soybeans. Hey, I can corner this stuff, he thought one day, and despite his already fabulous wealth, Tino did what so many others before him have, he got greedy. Of course he also turned out to be a crook and one of the biggest con artists in market history.

Starting in 1962, De Angelis began to weave a complex web, buying vast amounts of vegetable oil in both the spot and futures markets while supposedly storing the product in a tank farm he had acquired in Bayonne, New Jersey. [Right across the Hudson River from Wall Street, if you're not familiar with the area.]

Actually, he wasn't really taking delivery of the stuff, he only pretended to. Instead he filled the tanks with water, except for the little testing valves at the top of each one, so that when inspectors came around they then assumed that the whole tank was loaded with the oil they found in these tubes. De Angelis could then take the certifications that he owned all this veggie oil to get loans, the proceeds of which he used to buy up all the futures contracts on the product.

The loans, or warehouse receipts, were mostly acquired from a subsidiary of American Express called American Express Field Warehousing Company. Amex, in turn, sold the warehouse receipts, thus 'guaranteeing' that the oil was really in the tankers.

There are somewhat differing explanations in the accounts I read, but essentially Tino was trying to corner the futures market so that he could sell out at the top and cover his loans without anyone knowing he never actually had the stuff in the first place. But as so often happens in these situations, futures traders began to sniff out a possible scam before Tino was planning on getting out and Amex inspectors returned to Bayonne, only this time they realized the containers were void of any vegetable oil.

Well, you can imagine how the futures price then collapsed and on Tuesday, November 19, 1963, De Angelis's Allied Crude Vegetable Oil Refining Corp. filed for bankruptcy, at which point investors learned $100s of millions were unaccounted for in the scheme. De Angelis ended up in jail, only to reemerge as a figure in a Midwest cattle scam years later, as George L. told me, which is similar to Charles Ponzi who duped investors again after the original scandal in which his name became synonymous. [Or any number of other con artists in the history of the world.]

But the story doesn't end here. Oh no, not by a long shot. For you see, De Angelis owed countless $millions to various banks, brokerage firms, and the aforementioned Amex subsidiary. Two brokerage firms in particular, Williston and Beane and Ira Haupt and Co., handled his speculations in the futures market and both were now in deep trouble. On Wednesday, November 20, the New York Stock Exchange suspended the two from operating on the big board until their true financial status could be ascertained.

Ira Haupt, for example, had 22,000 customers with $450 million in securities. As John Steele Gordon points out in his book "The Great Game," many of the issues were held in 'street name,' "meaning that while owned by the customers, they were registered in the name of the firm to facilitate trading or to act as collateral for margin accounts." In bankruptcy, securities held in customers' names in those days were quickly returned to their owners, but those held in street name could be tied up for months.

The other firm, Williston and Beane, had 9,000 customers and their assets were also suddenly unavailable. When word got out of the troubles at these two shops, those at other brokerages got more than a bit antsy and in some respects an old-fashioned bank run ensued, though the depth of it is somewhat overstated, by my reading of the situation.

More importantly, the NYSE had a big problem on its hands. It was under no obligation to bail out the customers but it needed to protect the franchise and if the big board failed to take action the SEC would surely step in, thus eroding the NYSE's power. [A rather familiar theme these days, I think you'd agree.]

On Friday, November 22, Merrill Lynch offered to take over Williston and Beane (which it would later do), while capital from other sources allowed the firm to reopen at noon that day. But Ira Haupt was in more serious trouble and a meeting was called at the exchange to figure out the next step. Then shortly after 1:30 PM Eastern Time the news hit that President Kennedy had been shot. At 2:07 PM the NYSE shut down, with the Dow Jones off 21 points to 711.49.

Over the weekend, as the nation mourned, the exchange was in discussions over the fate of Ira Haupt and the result was liquidation, with exchange members assessed $12 million to make the clients of the brokerage whole while the banks that were owed money deferred receipt of same. A crisis had been averted and when the market reopened on Tuesday, November 26, stocks staged their largest one-day rally in history in point terms on the Dow, up 32, not just because there had been an orderly transition of power in Washington, but also because the NYSE for the first time had assumed responsibility for a member firm's failure.

[For its part, American Express also came through, making good on its obligations with its warehouse subsidiary and the vegetable oil receipts.]

The story of De Angelis and the subsequent problems with Williston and Ira Haupt were really just the tip of the iceberg for the decade of the 60s. Wall Street was drowning in paper as back office operations couldn't keep up with the increase in trading volume. [This was long before automation of most of the key functions.] Over 150 brokerage firms ended up failing during this time, whereas in the previous 25 years only one NYSE member outfit had been forced to close its doors due to insolvency. [Charles R. Geisst / "Wall Street: A History"] John Steele Gordon estimates that in 1968, some $4.1 billion in securities could not be accounted for at all due to inefficiency and simple carelessness.

This led to a less than stellar equity market in the late 60s, a situation not helped by waves of customers failing to meet margin calls. Accounts themselves were not insured in those days and even though the NYSE had adopted a special reserve to meet emergencies, as a result of the De Angelis-led collapse, the reserve itself was soon overwhelmed.

To remedy the situation, in 1971 the Securities Investor Protection Corporation (SIPC) was created to insure against fraud or mishandling of securities.

And now you know...the rest of the story.

Except for one thing. The accounts I read would have you believe that the stock market was collapsing in the days leading up to JFK's assassination because the Street was so overwhelmed with the De Angelis scam. But I can assure you that in looking at the actual closing prices, as I also listed in the earlier piece, this was not the case. The Dow Jones moved all of about 2% in the days leading up to Tino's bankruptcy and even that Friday, as rumors were whipping around about the stability of Ira Haupt and Company, the market was actually up a bit until the news from Dallas hit the wires.

Sources:

"Wall Street: A History" Charles R. Geisst
"The Great Game" John Steele Gordon
"The Message of the Markets" Ron Insana

Merry Christmas and Happy Chanukah, friends. We'll return on January 2, 2004, with what might be a fairly brief piece. It's the holidays, you understand.

Brian Trumbore

BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy. Any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. The securities mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy and past performance is no guarantee of future results.

 

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